Thames Water may be denied new debt financing in the next few weeks

Thames Water, the struggling water company, is fighting for its survival and has been told that it may not be able to raise new debts as soon as next week. According to the accounts of its holding company, the debt-ridden company faces a temporary state takeover if it fails. It has until 7th October to agree to an extension for much needed financing.

Thames is entitled to an existing revolving-credit facility, which is akin to an overdraft. The facility has a value of £530m. The facility will expire next week. Thames Water Utilities Holdings stated that the deadline was a “trigger” event for a scenario in which the water provider would “be prohibited from raising new debts without the consent of their creditors”.

The UK’s biggest water provider is struggling under debts of more than 15 billion pounds sterling, causing uncertainty for 8,000 employees as well as 16 million customers in London and the Thames Valley. It is noted as “material uncertainty” in the accounts. PwC believes that there are doubts about the company’s ability to continue operating for another 12 months, given the lack of “sufficient committed liquidity”. Thames has only enough money, about £1.6bn , to last through December, if the lenders refuse to extend loans.

According to sources familiar with the situation, the revolving facility – that gives businesses flexible access a pre-approved credit line – is expected to be “rolled-over”. The group is expected to rollover £2.1bn in such facilities by December.

The utility, which faced anger for its record of dumping sewage is in crisis. Shareholders reversed their decision on £500m emergency funding this year, amid a dispute with Ofwat (the industry regulator) over how much Thames can increase bills over five years.

In the event of a company’s collapse, the government will likely put it into a temporary nationalisation known as Special Administration Regime to continue its essential services while it examines long-term alternatives. A special administration could be expensive for the taxpayer, and Rachel Reeves would have a lot of headaches at this early stage in her tenure as chancellor.

The Ministers still hope that the “private market solution” will allow Thames to restructure their finances without the government’s intervention, but officials from the Department for Environment, Food and Rural Affairs and UK Government Investments continue to monitor the situation. Sources claim that Thames’s creditors are trying to agree on the terms of new loans before the end the year to provide “interim liquidity”.

The company is also scrambling for £3,25bn in order to stabilize its finances and attract new owners to the business. Ofwat will make a “final determination” about the bill increase in December or early January. Thames stated in its accounts that it would “revise downward” the planned expenditure “in the event equity funding was not forthcoming”.

A spokesperson for Thames Water said: “The reporting these accounts has no impact on the operation of Thames Water or its ownership structure or its finances.” The provision of water and waste-water services to 16 million customers is not affected. Our conversations with creditors about extending our runway for liquidity continue, and we are focused on securing additional equity after receiving our final determination.